This event could change everything next week for the gold price, expect extreme volatility – analysts

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(Kitco News) One major event new week could bring a new round of volatility to the gold market and help prices recover after two consecutive weeks of loss, according to analysts.

A stronger U.S. dollar keeps gold under pressure at first, as markets remain a bit confused by Federal Reserve reports.

“The primary driver for this week’s sales was the market’s response to the Fed minutes,” said Kitco Metals Global Trading Director Peter Hug. “Strength in the US dollar caused the metals to sell. Dollar has now stabilized and the metals found a bottom, reversed from weak overnight. “

The markets are waiting for the US government to generate some fiscal stimulus to sustain the economy. With the hiatus until September, however, relief does not appear to be coming, Hug noted. ‘People got nervous and put in cash. The US dollar turned almost 2%, ‘he said.

After briefly falling below $ 1,920 an ounce, Comex gold futures stabilized in December at $ 1,943.80, down 0.14% on the day, and 0.31% down on the week. The US dollar index climbed to 93.35 at the time of writing, up 0.60% on the day.

“The dip in the gold price seems to have been related to selling investors – likely to make some profit – and some strength in the U.S. dollar in recent days,” chief commission economist Caroline Bain told Kitco News on Friday.

Next week’s next event: Jackson Hole Symposium

The markets will hear more from central bankers next week during the annual Jackson Hole symposium, which will be held almost this year. This year’s event is entitled ‘Navigating the Decade Ahead: Implications for Monetary Policy’ and Fed Chairman Jerome Powell is scheduled to speak on August 27 at 9:10 am ET time.

“When the Fed chairman speaks, there is significant volatility. What the market is looking for to see if Powell is worried and what his view of the economy is over three months from now. If he shows one sign of concern that could create significant volatility, ‘Hug said. “When you have such an event, a lot of people tend to reduce their positions, whether it’s long or short.”

Gold’s wild ride will continue next week, said managing director of RBC Wealth Management, George Gero, noting that Powell’s speech next week will be one of the most important events to watch. “People will keep trading until they can get the message from the Fed,” Gero said.

Markets will closely monitor all communications regarding the Fed’s monetary policy review, said Pepperstone head of research Chris Chris.

“The Fed communications team has said that [Powell] will explain the findings of the review on monetary policy. So, this could be a risk for multi-asset volatility events … With the market somewhat disappointed by the lack of urgency expressed in the FOMC minutes, this could be a major event and it will be a risk for anyone who ‘ t USD, gold, [and] NAS100 exhibits, ”Weston said on Friday.

In other central bank news, a group of former Fed officials wrote an open letter in opposition to Fed-nominated US President Donald Trump Judy Shelton.

“We urge the First Chamber to reject this nomination … Ms. Shelton’s maidens are so extreme and poorly regarded as an unnecessary distraction from the tasks at hand,” said the letter, which was signed by 38 persons including former Vice President Alan Blinder.

Shelton’s Fed nomination was passed by the Senate Banking Committee in July and must now be approved by the full Senate. No date for the vote has been scheduled yet.

Price action of new week

It’s new week all about levels, Hug said. “If gold can gold the $ 1,925 per ounce by the close of Friday and the US dollar remains stable, then I am bullish on the metal next week,” he said.

The general trend has not turned into gold, Hug adds, noting that people are currently nervous because they have profit on the table. “A lot of investors got under $ 1,900 an ounce, so everything north of that area is profits. Investors are taking something off the table and moving it into cash, ”he pointed out.

Continuing, Hug expects high volatility levels throughout the fall.

The strength of the U.S. dollar is unlikely to continue much longer, Bain said, adding that it is optimistic about gold in the medium term.

“We expect the gold price to increase slightly in the coming months, as we expect a further leg-down in real US yields and a slightly weaker US dollar. “Continued uncertainty about the economic outlook as a result of the ebbs and currents of the virus is also likely to encourage investors to maintain some golden holdings,” Bain said.

Losses of gold in the last two weeks are not as significant as the foundations remain Bullish for gold, said FXTM senior research analyst Lukman Otunuga.

‘Rebound is potentially on the cards. A broad weaker dollar, negative US revenues, pre-election jitters and emerging cases of coronavirus in the United States are likely to shine gold in the medium to long term, ‘Otunuga said.

The $ 1,900 level has built in very strong support and even if gold falls to that level, many investors are interested in buying at that level, the analyst noted.

“Continued weakness below $ 1,960 could open a path to $ 1,930 in the short term. If $ 1,930 proves unreliable support, then prices could drop to the psychological level of $ 1,900 before bulls try to recreate the scene, “Otunuga said.

Commerzbank analyst Carsten Fritsch marked the 2011 high of $ 1,920 as the main support area, but warned that a drop below it could delay recovery.

“Gold has set a significant support level for itself, which is also close to its old record high from 2011. Many stop-loss orders will likely be placed below, so it will be important to maintain this support area. Otherwise, the correction could take significantly longer. This could also prompt ETF investors to sell their holdings, ”said Fritsch.

Data to view

Next week, data will be heavy, with the updated US Q2 GDP numbers out on Thursday.

“Further new week releases of 2Q GDP next week will further reveal the extent of the damage of recent months. The second stage of recovery is now underway, so do not expect to continue the fast-paced handball, ‘said ING economist on Friday.

Other major US data releases to keep a close eye include CB consumer confidence and new home sales on Tuesday, orders for durable goods on Wednesday, jobless claims and pending home sales on Thursday, as well as personal income on Friday.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither does Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept any liability for loss and / or damage resulting from the use of this publication.